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“Materiality” Not Relevant When Contract Specifies Grounds for Termination

As a general rule under California law, a breach of contract must be a “material” breach. That is, the breach must be important and relevant to the core purposes and intents of the contract. As an example, assume there is a contract for delivery of landscaping trees, bushes, and other vegetation. The contract says: “Seller shall deliver the product on Saturday via flatbed truck.” However, on the relevant Saturday, the product is delivered in full compliance with what was ordered but arrived via a paneled moving truck. Technically, that is a breach of the contract, but probably not a material breach.

However, as with almost every aspect of Contract Law, the parties to a contract are free to negotiate and agree on specific provisions that might “trump” the default rule that a breach must be material. To continue the example, if the parties specifically negotiated a “flatbed truck” because of space limitations like overhanging trees, then using a paneled truck might actually be “material.” An experienced San Diego corporate attorney can help draft your business contracts to ensure that all the important, essential, and material terms are expressed in your written contracts.

A recent unpublished case decided by the California Court of Appeals gives a real-world example of when specific contractual provisions “trump” the default rule. See Doe v. Regents of the University of California, Case No. D073328 (Cal. App. 4th Dist. November 29, 2018). In that case, the plaintiff was a tenured professor of medicine (the “Professor”) at the University of California, San Diego. The Professor was accused by two of his subordinates of engaging in severe harassment based on sex and sexual orientation.

Following an investigation, the Professor and the University entered into a three-page Settlement Agreement in which the University discontinued its internal investigation and the Professor agreed to various obligations. The Settlement Agreement provided that “[a]ny failure by [the Professor] to adhere to any of the commitments or obligations set forth in [the Settlement Agreement], including the monitoring program established with the PWBC, [would] entitle the University to void [the] [A]greement …”

Among the obligations to which the Professor agreed was to enter and complete an assessment/evaluation program at Vanderbilt University. The Professor was obligated to “… obtain from Vanderbilt both an executive summary of the findings and a detailed assessment” and was also obligated to allow Vanderbilt to release this information to the University. The Professor completed the Vanderbilt program in April 2016 and duly forwarded the executive summary of the report. However, the Professor did not forward the full report and detailed assessment. Furthermore, the Professor failed and refused to authorize Vanderbilt to forward the detailed assessment directly. A series of emails were exchanged in May 2016 and then again in October-November 2016 in which the University sought to obtain the detailed assessment or the Professor’s authorization to obtain the report from Vanderbilt. Various deadlines were given to the Professor, all of which passed. On November 8, 2016, the University voided the Settlement Agreement based on the Professor’s failure to comply with the terms of the Agreement. The next day, the Professor provided a redacted version of the detailed Vanderbilt assessment. However, the University continued its disciplinary actions and began a formal hearing in February 2017.

In June 2017, the Professor sued the University for breach of contract claiming that the University breached the Settlement Agreement by purporting to void the Agreement and thereafter reinitiating disciplinary proceedings against him. Among his arguments were that his failure to provide the Vanderbilt detailed assessment was not a material breach of his obligations and was not sufficient to allow the University to void the Settlement Agreement.

At the trial level, the judge agreed with the Professor and held that his breach was not “material” enough to justify the University’s voiding of the Settlement Agreement. The court noted that the full report was delivered on November 9, 2017, the day after the Settlement Agreement was terminated and that the redactions were not material.

On appeal, the Court of Appeals reversed. The court held that the contract language “trumped” the general rule of law that a breach must be “material.” Because the Settlement Agreement specifically stated that the Professor had to give over to the University the full Vanderbilt assessment, his failure to do so was “material,” even though a copy was tendered the next day. The court noted that, under other circumstances, the Professor’s breach might not have been material. But under the circumstances of the case and given the specific provisions in the Settlement Agreement, the breach was “material.”

Contact San Diego Corporate Law

For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. As can be seen, the language used in a contract is important. Mr. Leonard has been named as “Best of the Bar” by the San Diego Business Journal for the past four years. Mr. Leonard can be reached at (858) 483-9200 or via email.

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